Contract Law Flashcards
A man tells his friend that he wants to buy a cheap second-hand car for his daughter. The friend tells the man that he is in luck because his colleague is currently selling his car. The man gets in touch with the colleague who offers to sell him the car for £5,000. The man is tempted, but the car is more expensive and fancier than he was ideally looking for, so he asks the colleague if he can think about it and get back to the colleague in a few days. The colleague agrees. The next evening the man goes for a drink with his friend and tells him that he has fallen in love with the colleague’s car and is going to buy it. The friend tells the man that the colleague has changed his mind about selling his car. In a panic the man calls the colleague immediately and says that he will buy the car.
Is there a binding contract for the sale of the car between the man and the colleague?
No, because the colleague’s offer had been revoked.
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(B) The colleague’s offer had been revoked so there is no contract. Revocation must be communicated to the offeree, but this can be done by a reliable third party, which in this case was the man’s friend, so (A) is not correct. (C) is incorrect, as an offer can be revoked at any time, even if there has been a request to keep it open, provided the rules as to communication of revocation have been complied with, which was the case in this scenario. (D) is incorrect because it is not relevant. Whilst a counteroffer will terminate an offer, and it is correct that there was no counteroffer in this scenario, that is not the reason there’s no enforceable contract; there’s no enforceable contract because the offer had been validly revoked. (E) is incorrect because it does not state the reason why there is no binding contract. If a request to keep an offer open is supported by consideration, this creates a separate collateral contract. If the offer is then revoked, it is the separate collateral contract that is breached . The remedy for breach of that collateral contract would be a claim for damages. However, a breach of the collateral contract would not entitle the neighbour to accept the original offer to sell the car if that offer has been revoked.
A woman agreed to sell her friend a puppy. The purchase price was paid, and the puppy delivered on the same day. The day after the puppy was delivered, the woman promised her friend that the puppy had a good temperament and was excellent around children. A week later the puppy badly bit the friend’s daughter, who required hospital treatment.
Is the woman’s promise enforceable?
No. As it was made after the contract for sale was concluded, there was no consideration to support it.
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(C) The woman’s promise is not enforceable, as it was made after the contract had been concluded and performed. There is therefore no consideration to support the promise. To be valid, consideration must be provided by both parties to be valid, and therefore additional consideration would have had to be provided by the friend to support the promise. (A) is incorrect because equity would not interfere in an executed contract where there has been no breach. Equity is ‘the gloss on the common law’ and primarily provides additional remedies where damages would be insufficient, such as, injunctions and specific performance. This is not relevant in the present case, as there has been no breach of the original contract. (B) is incorrect because representations are statements made prior to a contract being concluded to induce a party to enter into it. The promise here was made after the contract was formed. Similarly (D) and (E) are also both incorrect as the contract was concluded and performed before the promise was made. Therefore the promise did not constitute a term of the contract, nor is there any evidence that it was in the contemplation of both the woman and the friend that the puppy needed to be safe around children.
A builder places an online order for a consignment of bricks from a merchant, for delivery on 20 May. The merchant accepts the order. The bricks are required for immediate use in building a house for the builder’s customer. On 22 May, the merchant tells the builder that the bricks will not be delivered until 25 May. The builder’s contract with their customer requires them to pay the customer compensation for the resulting delay.
What are the builder’s rights as against the merchant?
The builder can terminate the contract and claim damages for the additional cost of sourcing replacement bricks, but they cannot claim for the compensation payable to their customer.
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(B) Where a time for delivery is agreed in a commercial contract, there is a presumption that time for delivery is of the essence of the contract. This means that the agreed delivery time is a condition of the contract. If it is not complied with, the innocent party (here, the builder) can terminate the contract and claim damages. The damages will include the additional cost of sourcing replacement bricks. However, the compensation payable by the builder to their customer depends on the contract between the builder and the customer, so it is unlikely to be ‘loss flowing naturally from the breach’. The builder could claim it only if it was in the reasonable contemplation of the builder and the merchant when they concluded their contract. Here, there is no indication in the facts that the merchant was aware that compensation was payable to the builder’s customer in the event of delay, and so the builder cannot recover for what they must pay to their customer. (A) is incorrect because as stated above the builder can terminate the contract but is unlikely to be able to claim damages for the compensation payable to their customer. (C) is incorrect because the builder is unlikely to be able to claim damages for the compensation payable to their customer but can claim for the additional cost of sourcing replacement bricks. (D) is incorrect because the builder is unlikely to be able to claim damages for the compensation payable to their customer. (E) is not correct because this would be an order for specific performance. Specific performance is not available where, as here, damages would be an adequate remedy. The builder can obtain the bricks elsewhere and can recover damages for all their losses under the contract. Their problem is that the contract does not extend to the more remote losses.
A car dealer and a customer are in disagreement over the sale of a used car. The contract between them provided that the car would be valeted before delivery. On receipt of the car, the customer found that the car was in a filthy condition and the car dealer was therefore in breach of the contract, as clearly the car had not been cleaned.
What is the likely effect of the car dealer’s breach of contract?
The customer is entitled to damages only.
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(A) Breach of the requirement to have a car valeted before delivery does not go to the root of the contract, and is therefore not a fundamental breach which would give the innocent party the right to bring the contract to an end. It is therefore a breach of a warranty (a lesser term) rather than a condition. Breach of a warranty entitles the customer to damages only, so (A) is the correct answer. (B) and (C) are both incorrect as breach of a warranty does not give the customer the right to terminate the agreement, only to claim for damages. (D) is incorrect as equitable remedies will be available only where damages would not be an adequate remedy, and that is not the case here. (E) is incorrect as the customer does not have the right to terminate the contract for a breach of a warranty, only for breach of a condition.
A band enters into a contract with a manager. A term of the contract prohibits the band from engaging anyone else to act as their manager. The band is successful, and as a result, the band is offered the opportunity to sign a new management contract with one of the music industry’s top management companies.
What remedy or remedies is the original manager entitled to receive if the band engages the management company?
Damages only.
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(A) The original manager is entitled to damages only. Damages would be an adequate remedy in this case. The manager can be awarded the profits that they would have expected to make under the management contract until it could be properly terminated, less an allowance for mitigation. (B) is incorrect because specific performance would not be granted in this scenario. Specific performance is an equitable remedy requiring the party in breach to carry out their contractual obligations in full. It will be granted in some cases in which damages are not an adequate remedy, but it will not be granted if the contract is for employment or similar personal services. (C) and (D) are incorrect. There is never an entitlement to an injunction. It is a discretionary remedy. Bands need managers, so granting an injunction prohibiting the band from engaging a different manager will have the effect of forcing the band to work with the first manager. This would be tantamount to enforcing a contract for personal services. Also, damages would be an adequate remedy in this case. The manager could be awarded the profits that they would have expected to make under the management contract until it could be properly terminated, less an allowance for mitigation. (E) is incorrect because the prohibition is not a restraint of trade clause. A restraint of trade clause is a clause which restricts activities after a contract has come to an end. This prohibition is part of an ongoing relationship; prohibitions of this sort are commonplace, and in fact the management contract could not really work without it.
A woman hired her friend, who was an excellent cook, to prepare food for a large family reunion picnic that she was planning for the following summer. Her friend offered to cater for the picnic at a much lower rate than it would have cost to hire a professional caterer. To avoid misunderstandings, the woman and her friend signed a written contract. A few months later, however, the friend decided to retire, so she telephoned the woman to apologise and cancel the contract. The woman was very disappointed but said nothing and began looking for another caterer. She found several other caterers willing to cater for the picnic, but none of them would do so for the low price agreed in the contract. The woman therefore decided to sue her friend for specific performance.
Which of the following is a reason why the woman’s action for specific performance will not succeed?
Because a contract for personal services is involved.
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(A) The woman’s claim against her friend will not succeed because a contract to provide personal services is not specifically enforceable: you cannot compel someone to work for you. A court will not order one party to work for another because of the difficulty of enforcement. Another requirement for specific performance is that enforcement must be feasible. Enforcing a services contract generally would create complicated and timeconsuming supervision problems, which the courts are reluctant to undertake. Another reason (perhaps less relevant in this case) is that the courts are reluctant to enforce a contract where personal relationships are involved. A further reason why specific performance is not available in this case is that damages would be an adequate remedy. The services to be performed by the friend were not unique or capable of being performed solely by her. The woman can be adequately compensated by recovering the additional cost of having someone else perform the required work. (B) is incorrect because circumstances that would permit the defence of laches do not appear to be present. Laches is available as a defence to an equitable remedy if the innocent party has delayed unreasonably in bringing the action and the delay is prejudicial to the other party. Here, there is no evidence that the woman delayed unreasonably in bringing her claim: she merely spent some time trying to find another caterer. Nor has the friend been prejudiced by the delay. (C) is incorrect because this agreement is in a commercial context and the written, signed contract demonstrates that they intended to be bound. (D) is incorrect because the mere fact that the friend was willing to do the work for a lower price than other caterers does not by itself mean that the contract was unconscionable. (E) is incorrect because unjust enrichment is not an obstacle to a claim for specific performance where the innocent party is seeking to have the party in breach perform their contractual obligations. There is no unjust enrichment where the parties perform their agreed contractual obligations.
A woman hires a contract killer to murder her husband. The woman pays the contract killer £500,000, but he has a change of heart and does not go through with the murder but leaves the country with the woman’s money.
Can the woman recover the £500,000?
No. The contract is void for illegality in formation.
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(B) Any contract that contemplates a criminal act will be illegal and automatically void. As murder is a criminal offence, this would apply in this scenario. (A) is incorrect as, if this had been a legal contract, both parties would have provided consideration. (C) is incorrect because this contract is illegal at its outset, not in its performance. (D) is incorrect because even though all the necessary elements for a valid contract may be present, the fact that the contract is for an illegal act renders it void, so no damages can be recovered for its breach. (E) is incorrect because the law of restitution does not apply when a contract is void for illegality from the start because it involves serious criminal misconduct. It is, however, correct that the law of restitution does not allow a wrongdoer to profit from their wrongdoing and might allow a party to recover amounts paid under a void contract where the reason for invalidity is not illegality.
On 1 September, an importer offers to sell a consignment of fresh fruit to a greengrocer. The greengrocer emails an acceptance of the offer on 22 September. The importer sends an email back explaining that when he had not heard from the greengrocer within three days, he sold the fruit to a different greengrocer in order to sell it before it rotted.
Is the importer liable for breach of contract?
No, because the importer’s offer had lapsed before the greengrocer had accepted the offer and therefore there was no contract between the parties.
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(B) The importer will not be liable for breach because the offer had lapsed and so no contract was formed. Unless a time for acceptance is specified, an offer will lapse after a reasonable time. What is ‘reasonable’ will depend on the nature of the subject matter, for example, an offer to purchase perishable goods, will lapse more quickly. Here, the offer was for a consignment of fresh fruit. It is not reasonable to expect an offer for the sale of consignment of fresh fruit to remain open for three weeks–because the fruit would rot by then, as indicated by the fact that the importer feared its rotting after just three days. Therefore, the offer had lapsed before the greengrocer accepted it, so the importer is not liable for breach of contract. Thus, (A) incorrect. (C) is not correct, as there was no contact for the reasons stated above. Anticipatory breach occurs if before performance is due under a contract, one party indicates they will not perform. (D) is not correct. A contract can be rescinded or cancelled because of common mistake, which usually means that both parties to a contract were mistaken about the existence of the subject matter of the contract. Here, no contract was formed as discussed above. (E) is not correct. A contract will be discharged by frustration if it has become impossible to perform. Here, there was no contract to discharge. The importer’s offer had lapsed before the greengrocer accepted it.
A small family travel agency has a contract to sell tickets for flights on an airline in return for a commission for each flight sold. The business of the travel agency is tied almost exclusively to the airline. The airline soon realises that the agency’s recordkeeping is very poor, which causes the airline to spend extra money to double check the agency’s bills. The airline believes that the agency’s poor recordkeeping justifies immediate termination of the contract. The airline informs the agency of the above but agree they will not terminate the contract if the agency agrees to a lower commission rate, to reflect the airline’s added administration costs. The agency agrees to the variation. The agency subsequently brings a claim seeking to recover the full commissions owed under the original contract.
Is the court likely to find that the variation to lower the commission is binding?
Yes, because the airline believed that it was entitled to terminate the contract.
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(D) A court is likely to find the variation binding because the airline believed that it had a right to terminate the contract and, therefore, there was consideration to support the variation (specifically, the airline gave up whatever right it believed it had to terminate the contract based on the agency’s poor record keeping). Therefore, (E) is incorrect. (A) is incorrect because economic duress makes a contract voidable (rather than void) – (and in any case there may have been no economic duress, because the airline believed in good faith that it was entitled to terminate the contract). (B) is incorrect because the airline’s expenditure was not incurred in return for the agreement to vary the commission; it was incurred to resolve the problem with the agency’s record-keeping. (C) is incorrect because undue influence involves improper threats (or the abuse of a relationship of trust and confidence, which is not relevant here). Here, the airline believed that its threat to terminate the agreement was justified, so it is not improper.
A garage contracted with a supplier for the sale and installation of a new car maintenance ramp, which both parties were aware was required for use immediately in the garage. The date agreed for delivery of the ramp was delayed by five months, so the garage sued the supplier for lost profits from (1) their ordinary trading profit from car maintenance work during the five-month period, and (2) a proposed expansion of the garage’s business to include maintaining a large fleet of prestigious chauffeur-driven cars.
Will the garage be successful in its claim for loss of profit?
No. The garage would only be able to recover damages for the loss of their normal trading profit, but not the one-off contract.
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(D) Damages for breach of contract may be recovered only for losses arising naturally from the breach and special or unusual loss which were in the contemplation of both the parties at the time the contract was made as a probable result of a breach of the contract. Normal trading profit clearly arises naturally from the supplier’s breach of contract. The profit from a new line of business would have to have been in the reasonable contemplation of both the parties when they entered into the contract. There is nothing in the scenario to suggest this was the case. (A) is incorrect because, even if there is a breach of contract and the innocent party has suffered loss, that loss must not be too remote a consequence of the breach. In this scenario, the profit from the new line of business is likely to be too remote for the reasons set out above. (B) is incorrect because only the loss of profit from normal trading activity could be said to arise naturally from the breach, whereas the loss of profit from the new business is likely to be too remote as it was not in the reasonable contemplation of the parties at the time the contract was made. (C) is incorrect because it is unlikely that the loss of profit from the new contract was in the reasonable contemplation of the parties at the time the contract was made. This test is also not relevant for the loss of normal trading profit, which only requires it to have been a loss arising naturally from the breach. (E) is incorrect as the loss of the ordinary trading profit is likely to be held to be a loss arising naturally from the breach of contract by the supplier, and is therefore not too remote.
Before entering into a contract to sell their house, the sellers tell the buyers that there are no planning applications to build on the adjoining field. Unknown to the sellers, an application to build on the field was submitted the day before they made the statement. The buyers relied on the statement in deciding to enter into the contract.
What remedies are available to the buyers for misrepresentation?
The buyers can rescind the contract, and they can claim damages unless the sellers can prove that they had reasonable grounds for believing, and did believe, that the statement was true.
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(C) This is a case of negligent or innocent misrepresentation. In this situation, the innocent party can always rescind the contract, unless one of the bars to rescission applies or the court orders damages in lieu of rescission (which is unlikely here because of its significance to the buyers). The innocent party can claim damages unless the other party can prove that they had reasonable grounds for believing, and did believe, that the statement was true. That might be the case here if the sellers had no way of knowing of the planning application when they made the statement to the buyers. In that case the misrepresentation would be innocent rather than negligent. (A) is not correct, because it is not necessary to prove that the sellers knew of the planning application in order to claim damages. That would be tantamount to fraudulent misrepresentation, but that is not the only situation in which damages are available. (B) is not correct because rescission is available for both innocent and negligent misrepresentation. (D) is not correct because the innocent party does not have to prove negligence: it is for the other party to disprove it. (E) is incorrect because both rescission and damages may be available even though the representation was not fraudulent.
A photography buff wrote a letter to his friend offering to sell him his camera, which the friend had admired, for £1,500. The day after the friend received the letter, he posted a letter back in response to the photography buff agreeing to purchase the camera for £1,500. After posting the letter, the friend was describing the camera to a colleague who was very knowledgeable about photographic equipment, and learned that the camera was worth no more than £1,200. The friend immediately telephoned the photography buff and told him that he had no interest in buying the camera. The photography buff received the friend’s letter agreeing to purchase the camera a day after receiving the phone call. The photography buff insists his friend is bound by the contract.
If the photography buff brings a court action against his friend for breach of contract, and the friend defends on the grounds that no contract was formed, how should the court rule?
For the photography buff, because his friend’s letter accepting the offer was effective when posted.
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(C) A contract was formed because the friend’s acceptance was effective on dispatch. Under the postal rule, acceptance by post creates a contract at the moment of posting, properly addressed and stamped, unless the offer stipulates that acceptance is not effective until received. Here, the friend dispatched first an acceptance and then a rejection of the photography buff’s offer. The postal rule applies because the photography buff’s offer did not specify that acceptance was not effective until receipt. Because the friend dispatched his acceptance before he called with his rejection, the postal rule applies. Thus, the friend’s acceptance was effective, thereby creating a contract at the moment it was mailed, and his attempted rejection was ineffective. (A) is incorrect because the letter from the photography buff indicates that the subject matter of the contract was his camera that the friend had admired for some time. This description appears on its face to be sufficiently definite that a court would be able to determine with reasonable accuracy which camera is subject to the photography buff’s offer to sell. (B) is incorrect because once the acceptance was effective, the fact that the photography buff received the rejection by telephone before he received the acceptance letter has no effect on the formation of the contract. (D) is incorrect because there is no requirement that a rejection of an offer to enter into such a contract must be in writing. (E) is incorrect as there is no suggestion that the initial letter was merely an invitation to treat. An invitation to treat is an expression of willingness to negotiate, whereas the letter from the photography buff was definite and clear enough to be an offer, and also does not fall into one of the categories of usual invitations to treat, for example, adverts, displays in shop windows or on shop shelves, and tenders.
A clothes shop owner contracted with a builder for the construction of a suite of new dressing rooms in the back of the shop. In past contracts, the builder had required that shops be closed during such construction but, because the shop didn’t want to lose revenue during the construction, the builder agreed to construct the dressing rooms whilst the shop was open if the shop owner agreed to a contract clause excluding the builder’s liability in negligence for any personal injuries that might occur during construction. The parties signed an agreement containing the exclusion. During construction, a wall of the new dressing room collapsed due to the negligence of the builder severely injuring the shop owner.
Can the shop owner recover for the builder’s negligence?
Yes. Under the Unfair Contract Terms Act 1977, any clause that seeks to exclude liability for death or personal injury due to negligence will be void.
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(B) Under the Unfair Contract Terms Act 1977 (‘UCTA’) (which deals with business-to-business transactions), any clause which purports to exclude liability for death or personal injury as a result of negligence will be void. (A) is incorrect because the Consumer Rights Act 2015 deals solely with contracts between businesses and consumers. Both the clothes shop owner and the builder are acting in the course of business, so the UCTA is the relevant legislation in this case. (C) is incorrect, as under the UCTA it is not possible to exclude liability for death or personal injury due to negligence. (D) is incorrect because there is no exception to the rule in the UCTA just because one of the parties doesn’t want to lose revenue. The fair and reasonable standard applies to exclusions of liability for negligence causing damage to property, not personal injury or death. (E) is incorrect because, as stated above, the UCTA regulates exclusion clauses in business-to-business contracts.
An interior decorator asked a carpenter to build her a piece of furniture. They entered into a written contract, with a contract price of £500 to be paid when the decorator received the furniture. When the work was completed, the carpenter shipped the furniture to the decorator. After inspecting it, the decorator felt that the price was too high and told the carpenter she would pay only £400 for it. The carpenter reluctantly agreed because he needed the cash. The decorator sent the carpenter a cheque for £400 marked ‘payment in full and final settlement’. The carpenter cashed the cheque, and then sued the decorator to recover the £100 balance.
Which of the following statements best reflects the applicable law?
The carpenter can recover the £100 balance from the decorator because there is a lack of consideration for the promise to forego the balance.
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(B) Generally, payment of a small sum than due will not be sufficient consideration for a promise by a creditor to discharge a debt, with some common law exceptions, for example payment at an earlier date or payment by a third party, none of which is present in this scenario. (A) is incorrect because accord and satisfaction requires some benefit to be conferred on the party accepting payment of a lesser amount, and there is nothing in the scenario to suggest the carpenter has received any such benefit. (C) is incorrect because there is no promissory estoppel because there was no change of position by the decorator based on any act or statement by the carpenter. (D) is incorrect because the carpenter accepting a cheque is not sufficient to discharge the designer’s contractual duty to pay him the full amount in the absence of new consideration. (E) is incorrect because the requirements for duress are not present in the scenario as the doctrine relates to the conclusion of a contract, not a part payment situation. There is no new contract here (not even a contract to vary the existing contract).
A woman was induced to enter into a contract by her neighbour, as a result of a negligent misrepresentation made by the neighbour.
Which of the following is not true in relation to the woman’s rights in respect of the misrepresentation?
The contract between the woman and her neighbour will be automatically void as a result of the negligent misrepresentation.
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(D) Where misrepresentation is proved, the contract is voidable at the election of the innocent party. Therefore (D) is the correct answer because it is not a true statement. The contract would not be automatically void. (A) is the wrong answer for the same reason: when a contract is voidable, the innocent party can elect to treat it as having come to an end or to affirm it, and claim damages for any loss suffered. (B) is incorrect because it is also a true statement; whilst rescission is an option, one of the bars to rescission is when the parties cannot be restored to their pre-contractual position, for example, because a third party has acquired rights. (C) is not the correct answer because, under the Misrepresentation Act 1967, negligent misrepresentation is a cause of action for damages. (E) is incorrect because it is a true statement. As well as a statutory claim for damages under the Misrepresentation Act 1967, the woman would alternatively be able to claim under the tort of negligence for negligent misstatement.
